Market Updates
Fed Hikes Rates by 25 Basis Points, Says Banking System Is "Sound"
Brian Turner
22 Mar, 2023
New York City
The Federal Reserve revised the fed funds target range by 25 basis points to between 4.75% and 5.0%, matching the expectations set by most investors.
The central bank, in a node to the rising stresses in the U.S. banking system, said "the U.S. banking system is sound and resilient" and added that "some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."
The Federal Reserve also lowered its economic growth projection in 2023 but also revised slightly higher its estimate of inflation and core inflation in the year from its December projection.
The economic growth is now estimated at 0.4% in 2023 from the previous estimate of 0.5% in December, unemployment rate to 4.5% from 4.6%, the personal consumption price expenditure index or PCE inflation to 3.3% from 3.1% and core PCE inflation to 3.6% from 3.5% respectively.
The policy committee left its estimate of the federal funds rate unrevised at 5.1%, indicating only one additional rate hike before the Fed pauses.
The fast moving banking crisis has complicated the Fed's decision making because rising rates are contributing to losses in generally considered safe investments in Treasury securities.
While the largest 11 banks are perceived to have adequate capital and liquidity, a growing number of banks from the 75 regional banks may be forced to borrow from the central bank or raise capital in depressed market conditions.
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